The stock market tends to do much better for the entire year if it gets a good head start with positive returns in January. As one would expect, some TSP investors have done better than others. The so-called “January Barometer” has been right more than it has been wrong. When the stock market has a positive return in January, stocks have finished up for the entire year (with three exceptions) since 1950. One exception was in 2001. January was a good month but the 9/11 attacks resulted in a significant loss in stocks for the year.

With that having been said, the stock market did well in January 2012. The C fund was up 4.4% in January. It finished behind the S fund which returned 7.59% and also behind the I fund which returned 5.36%. (See the current and most recent monthly returns for all TSP funds.)

The stock market and the Thrift Savings Plan are confusing to many readers. 85.4% of federal employees in the FERS retirement program participate in the TSP. That means that about 15% are giving away money they would have by starting to save for their retirement. Perhaps these folks plan on retiring until they die or plan on winning the lottery but their retirement future is not very bright since the TSP is an essential part of a future retirement for federal employees. Not investing in the Thrift Savings Plan is giving up on one of your biggest benefits of being a federal employee. As one financial writer commented: “The federal government has established the platinum standard for 401(k) plans. It’s called the Thrift Savings Plan, and it is available to all federal employees….Nothing measures up against the Thrift Savings Plan.”

Some federal employees have done very well. Perhaps their success will help others who would prefer to see a windfall come their way rather than gradually building up assets for future financial security.

The 208 TSP Millionaires

Some TSP investors will make much more than others as a result of the TSP returns in January.

A person who has, for example, two million dollars in the TSP will have a lot more money after a month in which the market is up more than 4% than a person who has only $50,000 invested. To highlight: a return of 4% on two million dollars is $80,000. An additional $80,000 in one month will make a difference in your future retirement. The person with $50,000 in the TSP will see an additional $2000. Obviously, once a person is able to amass one or two million in the TSP, the potential financial rewards are much greater. The trick is having the discipline to keep investing as much as you can invest each pay period without worrying about the latest stock market returns (sometimes called “dollar cost averaging” as a way of investing). (Also see Are You a Millionaire Yet? for how many Americans amass at least one million dollars)

No doubt, there are naysayers who will argue that federal employees won’t get rich and no one has over a million dollars in their Thrift Savings Plan (TSP). But, for those who may be curious, there were 208 TSP investors who now have over $1,000,000 in their TSP accounts. (Our thanks to Thomas Trabucco, Director of External Affairs for the agency that managers your TSP funds, for providing this information on the TSP.)

In fact, there is one TSP investor who had $4,041,671.71 in in a TSP account as of January 18, 2012. No doubt, that figure is up considerably since then as all TSP funds were up for the month of January.

These TSP millionaires may have participated in their TSP longer than others, they probably put in more money over time, and they have invested wisely and often and watched their investment grow over time. No doubt, some of them probably became a federal employee later in their careers and transferred at least some of their earlier investments into the TSP funds since it is a good way to invest money with low expenses.

How do these TSP success stories invest their money? Their investments vary. 11 of the TSP millionaires are invested solely in lifecycle funds. 122 are invested solely in the TSP core funds (G, F, S, C and I funds). 75 of them are invested in both the core funds and the lifecycle funds. (See Lifecycle Funds: Making A “Model Retirement Program” Even Better)

The Average TSP Investor

Obviously, the average TSP investor has amassed considerably less than the TSP investors with the largest balances. The average TSP investor has been in the program for 9.6 years. As of last month, the average TSP balance was $64,671.71. For the year, the average employee contribution was $4900.07 (this average does not include current employees with no contributions to their TSP).

This average for TSP investors is about the same as it is for private sector employees investing in a 401(k) plan. The median 401(k) total is about $60,000. Only 2% of those investing in a 401(k) plan have over $1 million dollars amassed. The primary difference between those that have over a million dollars and those that do not: “The one characteristic that differentiates the winners from the non-winners here is contribution rate — a high percentage of those million-dollar savers had constant participation and high contribution rates.”

The average balance of TSP accounts has actually gone down. In 2009, the average TSP account had $68,790. In part, this is due to more senior employees retiring and younger employees replacing them and more new federal employees joining the workforce. Also, some of the decline is probably due to the recession, and TSP participants (both active employees and retirees) withdrawing money from their accounts for a variety of reasons such as rolling money over into an annuity.

We do know that the total amount of money in the TSP continues to grow. In large part, this is because of employee contributions to their accounts. In addition to employee contributions, the federal government added another $62,491,853 in the last fiscal year.

Your Financial Future

Investment guru Dave Ramsey (my term, not his) in his book The Total Money Makeover writes: “The stock market has averaged just below a 12 percent return on investment throughout its history….97 percent of the five year periods and 100 percent of the fifteen-year period in the stock market’s history have made money.”

Most of us have etched in our memories the horrible returns from the C fund from 2000 – 2002 and the roughly 37% loss in the value of the C fund in 2008. The C fund is an index fund and tracks a broad range of stocks. How can one make money with losses like those that occurred in some years?

Here is another statistic that may surprise some. The average annual return of the C fund from 1988 – 2011, including several horrible years due to both internal and external factors impacting the stock market: about 11%. (See our annual TSP fund return charts.)

The G fund, the TSP fund that never loses money, did not have a single losing year from 1988 – 2011. During this time, we have had some of the highest returns on bonds we have had in over a century. We have also had extremely low interest rates due, at least in part, to intervention in the markets by the federal government. Throughout this time, the average annual return for the G fund: about 6%.

So, during financial meltdowns, wars, social disruption, nasty election campaigns, political and social scandals, and concern about global warming, TSP investors have made money over time and have been able to accumulate substantial assets before retiring after a federal career.

Our congratulations to those that now have over a million dollars in the TSP accounts. We hope it will encourage others, especially younger federal employees, to take advantage of this federal benefit, the financial value of which is probably underestimated by many.

Best of luck in making your financial decisions and investing in the TSP!

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletter and a co-founder of two companies and several newsletters concerning federal human resources.